Student debt is getting out of hand. Around 44 million Americans currently owe over $1.2 trillion in student loans, with an average $37,172 in existing debt. Seven million of those borrowers are currently in default of their loans, many unable to pay for their living expenses and crippling college debt.
Though the Obama administration didn’t help this debt by any means, it put in safe guards to gradually alleviate the burden of student debt. This meant helping those in trouble of defaulting avoid falling deeper into debt, and requiring loan companies to comply with certain industry standards when helping their customers.
Due to a recent ruling by current Secretary of Education Betsy DeVos, these Obama-era protections are now gone. In their place are dangerous new rules that could not only hurt those in debt, but have serious ramifications on the economy.
Starting in 2019, one company (and one company only) will handle all federal student loan accounts.
Either Navient, GreatNet, or PHEAA will be in charge of collecting payments. The company that wins the federal contract will handle around 32 million federal direct student loan accounts. The thought behind this change is that it will provide better customer service to borrowers and better accountability for each loan.
Here’s why that’s bad.
Having several companies handle federal student loan accounts reduces risk in case one of those companies were to go broke. Putting just one company in charge of account takes an immense risk if said company faces immense financial troubles. This is especially concerning since a significant portion of those in student debt— $137 billion worth of borrowers, to be exact — had yet to pay any amount towards their student debt for at least nine months by the end of 2016. This figure, which is trending upward, could have a detrimental effect on the contracted company’s ability to operate or even stay open.
The contract also states that the borrower will not have to provide any level of service to borrowers late on payments or those paying off loans based on income. Measures in place to prevent people from defaulting would not be mandatory, and likely won’t be implemented for the sake of cutting costs. The previously existing model put forth by the Obama administration was arguably confusing and costly, but made sense and kept borrowers safe (kinda).
Simply put, increasing the risk taken on by the sole agency and removing safeguards to prevent defaulting could, in fact, cause a crisis in the debt industry.
Betsy DeVos also took away existing protections that helped those in debt.
DeVos removed protections that prevented troublesome federal loan companies to be considered for federal contracts. Many of these companies — including Navient — engage in abusive and anti-consumer behaviors, causing tens of thousands of borrowers to complain each year. She also removed a mandate for a basic standard of customer service given to borrowers, as well as ways to help borrowers avoid defaulting. DeVos’ recent actions will essentially negate any complaints against awful loan companies, while also stripping borrowers from the protections they had before. This is being done for the sake of “transparency” and cost-cutting, according to the Department of Education.
What should you do if you have student loans?
It will soon be up to you (and only you) to make sure you’re current on your loans and don’t default. There will no longer be federal protections to help you avoid missing payments, nor will there be guidelines to help you get the level of service you might require. It’s easier said than done, but if you have student loans, do everything and anything you can to keep current with them. Otherwise, you might be in for a bigger financial headache down the line.